New case creates trap for the unwary in taking checks marked "Payment in Full"

March 13, 2002

O.P.M. (Other People's Mistakes) Alert

Important developments in California business, real estate and litigation from

www.lermanlaw.com

*New case creates trap for the unwary in taking checks marked "Payment in Full"

Ever wondered what you should do if you have a dispute with somebody and they try to resolve it unilaterally by giving you a check for less than what you claim they owe and they write on the check "Payment in Full"? If you cross out "Payment in Full" and cash it, can you still go after them for the balance? What if, just to make sure, you write on it "Partial Payment"?

A new case just came down that answers those questions. Woolridge v. JFL Electric, 02 C.D.O.S. 2323 (Jan. 28, 2002), notes there are two statutes which apparently address this issue, Civil Code Sec. 1526 and Commercial Code Sec. 3311. Problem is they provide different answers. On appeal, this court resolved the conflict by using the more recent of the two statutes, Section 3311, as the controlling law. That statute reads, in pertinent part, as follows:

  1. "If a person against whom a claim is asserted proves that (1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (2) the amount of the claim was unliquidated or subject to a bona fide dispute, and (3) the claimant obtained payment of the instrument, the following subdivisions apply."

  2. "Unless subdivision (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim."

In other words, those magic words written on the front of the check can cut off your rights to pursue further remedies against the maker of the check...if you deposit the check. The lesson: before settling any dispute, consult with your lawyer. "Do-it-yourself" settlements are fraught with traps for the unwary.

The above information is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.